Good quarter for Sylvan doesn't dispel questions

Company has shrunk, added venture incubator


July 28, 2000|By Rona Kobell | Rona Kobell,SUN STAFF

Sylvan Learning Systems Inc. said yesterday its second quarter earnings beat analysts' expectations by 3 cents a share - and it promised even better results in the near future.

The Baltimore-based education services company's revenue for the quarter ended June 30 was $92.5 million, an increase of 3 percent over the $89.9 million in revenue in the second quarter of 1999.

Analysts had estimated Sylvan's earnings per share at 12 cents, excluding the results of Sylvan Ventures, the Internet incubator the company formed this year.

Sylvan posted earnings per share of 15 cents, excluding $4 million in costs related to the incubator. Figuring in Sylvan Ventures, the company had net income from continuing operations of $4.7 million, or 10 cents per diluted share, compared to $6.5 million, or 12 cents per diluted share, for the corresponding period in 1999.

Evaluating Sylvan's performance compared to the second quarter of last year is difficult, both the company and analysts said. In the second quarter of 1999, Sylvan had net income of $11.38 million, compared to this quarter's $4.7 million. Sylvan sold Prometric, the company's computer-based testing division, in the first quarter of 2000, and PACE, the corporate training business, in December 1999. Its share count also changed, thanks to an aggressive buyback plan.

Then Sylvan announced its plan for an incubator for education companies - a venture that has flummoxed some of its investors.

"We're in the process of this transformation ... we do feel we're on track," Douglas Becker, Sylvan's chief executive officer, told analysts in a conference call.

Becker said he was pleased that the company beat expectations, but said analysts set their targets "incredibly low" - in part because Sylvan's strategy is so new.

Sylvan shares lost 93.75 cents yesterday to close at $11.50. Investors didn't flock back to the stock based on the earnings, in part because the company is still in the penalty box after missing earnings estimates twice last year, said Trace Urdan, a senior analyst with WR Hambrecht + Co. in San Francisco.

Urdan also said Sylvan's many businesses have in the past confused investors. Wall Street now is adopting a wait-and-see attitude toward the venture fund, due to Sylvan's limited experience with venture capital.

Despite those caveats, Urdan is bullish on the stock. He has set a target price of $20 a share.

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